Are publishers making a right royal mess of royalties?

Posted on Thursday 21st June 2012 2:48

Beyond the much publicised e-book royalty payment war lies a much bigger problem.

Much has been made of piracy, pricing, merchandising and the never ending power struggle between publishers and the likes of Amazon and Apple. But at the heart of the great e-book debate is the subject of royalties. With print and production costs for e-books so much lower than those associated with printed books, the publisher-author relationship has become increasingly strained as the former battles to maximise e-book margins and justify its role, while the latter vies for a better cut of the profits.

The likes of The Authors Guild have waded in on the dispute, claiming that the introduction of e-books means that for the first time publishers now have “strong incentives to work against authors’ interests”. Publishing consultant, Mike Shatzkin furthered this notion, stating: “Sales are down, margins are up. And that will last as long as publishing companies can continue to pay authors the royalties they’re paying them (for e-books) and sell the books at the terms they’re selling them on”. He then continued to campaign for a move from the current average 25% e-book royalty payment to a 50% payment. The debate rages on.

However, quite surprisingly, one of the key lessons we learnt at this year’s London Book Fair, was that many publishers do not even have the most basic infrastructure in place to calculate, manage, measure and accurately pay royalties for e-book sales to authors.

This is a major problem. In the shift from print to digital, one of the trickiest hurdles publishers have had to overcome is the move from one simple and traditional sales channel, via a warehouse or distributor, to hundreds, or potentially thousands, of sales channels, consisting of online retailers and book stores, e-book aggregators and even telecom providers. The speed with which new sales channels have been thrown into the mix, coupled with the sheer volume of data coming in from these multiple sources has caught many publishers off-guard, many of whom do not have the systems to cope.

Publishers have done well to ensure that they are up-to-speed on e-book production, have all the right workflows in place and also have also established proficient sales and marketing processes across these lucrative new channels. But it seems that many publishers have so far failed to implement tools and systems that can help them deal with the inevitable flood of sales data, which would in turn help them to distribute revenues to their partners. Many of the publishing royalty systems on the market can theoretically deal with e-book royalty payments, however this rapid growth in e-book sales channels has seen publishers increasingly struggling to collate sales data to send onto the royalty system in a timely and reliable fashion.

If most publishers are unable to accurately measure sales data from their products, particularly through e-books, how can they be expected to accurately apportion royalty payments to authors? Bizarrely, the truth is that they can’t and quite often royalty payment figures are plucked out of the sky.

Through our conversations at the Fair it became apparent that many publishers were almost fearful of the next royalty run and they were somewhat confused as to how to navigate this problem – both dealing with the now unmanageable quantity of data at their fingertips and working out subsequently how to effectively pay royalties.

One publisher stated “if you can solve the complexities around aggregating e-book sales for us that would be great, but if you can solve the resulting royalty issues, we’d sign up today”. Another commented that “e-book royalties is THE big talking point right now.”

Far beyond the ugly tug of war that is taking place on e-book royalty rates, this issue is one that has the propensity to boil over considerably. In addition to negotiating the percentage that is paid to authors through digital sales, publishers are increasingly looking at finding solutions to help them correctly allocate the exact amount to authors. And with only six months left until the end of the next royalty accounting period, the need for an effective remedy has never been greater or more urgent.

Taking into consideration the growing trend among authors to ‘go it alone’, especially when it comes to digital publishing, publishers have never felt more pressure to impress new and existing talent. In the not so distant future, e-book royalty payment efficiencies could become something of a game changer for publishers and could be the difference between winning and losing the most profitable contracts. With successful authors like Barry Eisler and Jessica Park opting to go down the self-publishing route in recent years and Amazon able to provide slick sales data and precise royalty payments to authors, can publishers really afford to fracture author relationships by not getting royalty payments right?